International Advisory and Monitoring Board on the Development Fund for Iraq

Press Release
August 10, 2006

Statement by the International Advisory and Monitoring Board on the Development Fund for Iraq

The International Advisory and Monitoring Board (IAMB) on the Development Fund for Iraq (DFI) met in New York on July 17-18, 2006 and issued the following statement:

"The IAMB met to continue its oversight role over the use of resources of the DFI, which is the principal repository for Iraq's oil-export receipts, and continued to oversee audits of the DFI in line with its mandate under UN Security Council Resolution 1637. The IAMB
(i) reviewed the latest audit reports; (ii) approved the reappointment of the auditor of the DFI; and (iii) reviewed progress on the special audits of the single sourced contracts using DFI resources.

"In regard of the ongoing financial audits, the IAMB reviewed draft audit reports by Ernst & Young covering the audits of Iraq's oil export sales and the DFI operations for the period from July 1, 2005 to December 31, 2005. A summary of the results of the most recent audit is available on the IAMB website (www.iamb.info). The final audit reports, which supplement earlier reports covering the periods from May 23, 2003 to June 30, 2005, will be made available on the IAMB website when received.

"The audit reports continue to be critical of the financial and accounting control systems in place in the spending ministries, the US agencies in respect of the outstanding commitments using DFI resources, and the Iraqi administration of DFI resources. The audit reports note in particular that the DFI overall control systems are ineffective, inter alia, due to (i) the lack of written policies and procedures and adequate governance arrangements, (ii) the focus on basic daily transaction controls rather than the overall control environment, (iii) staff who are not properly trained to deal with the nature and complexity of DFI transactions, and (iv) an ineffective internal audit function for the DFI.

"The audit reports recommend that (i) the DFI’s internal control system and governance arrangements be developed, for instance, by the appointment of a fund manager to direct the overall DFI activities, the establishment of an executive committee to oversee the DFI operations, and training of DFI staff in basic internal controls. The Board urges the Government of Iraq to take concrete steps to address the audit findings and recommendations to ensure that oil resources are better protected.

"The IAMB was also briefed by audit firms on (i) the review of the settlement between Kellogg, Brown and Root (KBR) and the US Government, and (ii) the further review of other sole-sourced contracts using DFI resources. Progress continues to be slow in executing these special audits. The follow-up audit of sole-sourced contracts by KPMG is scheduled to be provided to the IAMB by the end of September. The US Government is finalizing the contract of the audit firm selected to complete the review of the KBR settlement and fieldwork has not yet commenced. The IAMB continues to urge the expeditious completion of these special audits and expects to be provided with draft reports in advance of the next IAMB meeting.

"On the issue of transition, the IAMB was informed by the Iraqi representative that steps are being taken to establish an Iraqi oversight body to succeed the IAMB with a formal handover of responsibilities in December 2006.

"The next meeting of the IAMB is tentatively scheduled for October 30-31, 2006."